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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 8
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
PALWEB CORPORATION
(Name of small business issuer in its charter)
DELAWARE 75-1984048
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1607 WEST COMMERCE STREET DALLAS, TEXAS 75208
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(Address of principal executive offices) (City, State, and Zip Code)
(214) 698-8330
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(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $0.10 PAR VALUE
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(Title of class)
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This Amendment No. 8 is being filed to amend Part I, Items 1 and 5 of
PalWeb's Form 10-SB.
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PALWEB CORPORATION
FORM 10-SB/A
AMENDMENT NO. 8
INDEX
Page
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PART I
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Item 1. Description of Business........................................4
Item 5. Directors, Executive Officers, Promoters and Control Persons..20
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INFORMATION REQUIRED IN
REGISTRATION STATEMENT
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This registration statement on Form 10-SB contains "forward-looking"
statements regarding potential future events and developments affecting the
business of PalWeb Corporation, a Delaware corporation ("PalWeb"). Such
statements relate to, among other things: future operations of PalWeb, the
development of distribution channels and product sales and the introduction
of new products into the market. Forward-looking statements may be indicated
by the words "expects," "estimates," "anticipates," "intends," "predicts,"
"believes" or other similar expressions. Forward-looking statements appear in
a number of places in this Form 10-SB and may address the intent, belief or
current expectations of PalWeb and its Board of Directors and management with
respect to PalWeb and its business. The forward-looking statements are
subject to various risks and uncertainties described in this Form 10-SB. For
these reasons, PalWeb's actual results may vary materially from the
forward-looking statements.
RISK FACTORS
PALWEB IS A DEVELOPMENT STAGE COMPANY AND MAY NOT ACHIEVE PROFITABILITY.
PalWeb was incorporated on February 24, 1969. From April 1993 to
December 1997, PalWeb was primarily engaged in various businesses, including
the business of exploration, production, and development of oil and gas
properties in the continental United States and the operation of related
service business. In December 1997, PalWeb acquired all of the issued and
outstanding stock of Plastic Pallet Production, Inc. and its principal
business changed to selling plastic pallets and plastic injection molding
machines. As of August 28, 2000, PalWeb was using a prototype plastic
injection molding machine to produce plastic pallets. PalWeb is still in the
process of building a fully operational plastic injection molding machine.
PalWeb is in the development stage, it has incurred significant losses from
operations and there is no assurance that it will achieve profitability or
obtain funds to finance continued operations.
PALWEB HAS LIMITED EXPERIENCE IN MANUFACTURING AND MARKETING.
PalWeb's business strategy relies primarily on its success in
manufacturing and marketing, an area in which PalWeb has limited experience.
The success of its business strategy should be considered in light of the
risks, expenses and difficulties frequently encountered in
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entering into industries characterized by intense competition. There can be
no assurance that PalWeb will be able to manufacture or market its products
or proposed products, maintain or expand its market share or achieve
commercial revenues from its products or proposed products in the future. In
addition, certain aspects of PalWeb's business strategy can only be
implemented if PalWeb successfully secures additional capital. Some of the
foregoing factors are not within PalWeb's control, and there can be no
assurance that PalWeb will be able to implement its business strategy, or
that PalWeb's business strategy will result in profitability.
PALWEB'S BUSINESS AND ITS OFFICERS COULD BE ADVERSELY AFFECTED BY AN
INVESTIGATION OF PALWEB'S INDIRECT WHOLLY OWNED SUBSIDIARY, PACECO FINANCIAL
SERVICES, INC. ("PFS"), BEING CONDUCTED BY THE OKLAHOMA SECURITIES DEPARTMENT.
After a March 1999 examination of PFS by the Oklahoma Securities
Department, the Department proposed that PFS terminate its status as an
"investment certificate issuer." As of August 24, 2000, PFS and the Oklahoma
Securities Department were negotiating an agreed order that would preclude
PFS from making further sales of investment certificates to new or existing
holders and would require PFS to repay all holders of investment
certificates. If and when this agreed order is finalized, it is possible that
PFS would not have sufficient assets to pay the holders of investment
certificates that are outstanding unless the PalWeb Common Stock owned by PFS
appreciates significantly in value and PFS is able to sell such shares. The
liquidation of PFS could have a material adverse affect on the businesses of
both PFS and PalWeb. The Oklahoma Securities Department has not proposed to
take any enforcement actions, but it is possible it could do so, and such
enforcement actions could have a material adverse affect on the businesses of
both PFS and PalWeb.
PALWEB'S BUSINESS COULD BE AFFECTED BY CHANGES IN AVAILABILITY OF RAW
MATERIALS.
PalWeb uses a proprietary mix of raw materials to produce its
plastic pallets. Such raw materials are generally readily available and some
may be obtained from recycled plastic containers. At the present time, these
materials are being purchased from local suppliers. The availability of
PalWeb's raw materials could change at any time for various reasons. For
example, the market demand for PalWeb's raw materials could suddenly increase
or the rate at which plastic materials are recycled could decrease, affecting
both availability and price. Additionally, the laws and regulations governing
the production of plastics and the recycling of plastic containers could
change and, as a result, affect the supply of PalWeb's raw materials. Any
interruption in the supply of raw materials or components could have a
material adverse effect on PalWeb. Furthermore, certain potential alternative
suppliers may have pre-existing exclusive relationships with competitors of
PalWeb and others that may preclude PalWeb from obtaining its raw materials
from such suppliers.
THE MARKET MAY NOT ACCEPT PALWEB'S PRODUCTS.
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Any unexpected developmental, regulatory or manufacturing problems
could delay the commercialization of PalWeb's proposed products and may have
a material adverse effect on PalWeb and its prospects. In addition, the
market acceptance of any of PalWeb's plastic pallets will be substantially
dependent on the ability of PalWeb to demonstrate to the business community
the capabilities and benefits of PalWeb's plastic pallets as well as to sell
commercial quantities of the plastic pallets at acceptable prices. There can
be no assurance that PalWeb will be able to gain market acceptance for its
plastic pallets.
PALWEB MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING NECESSARY TO SUSTAIN
AND GROW ITS OPERATIONS.
PalWeb's financial statements have been qualified on a going concern
basis principally due to lack of long term financing to achieve its goal of
producing and marketing plastic pallets to compete with wood pallets. PalWeb
has funded its operations to date primarily through equity and debt
financings. PalWeb may need additional debt or capital in order to begin
generating a sufficient cash flow to sustain operations for the foreseeable
future. PalWeb will need to raise substantial additional funds to continue to
fund operating expenses or its expansion strategy. There can be no assurance
that additional financing will be available, or, if available, that such
financing will be on terms favorable to PalWeb. Failure to obtain such
additional financing would have a material adverse effect on PalWeb. In
addition, PalWeb acquired an indirect wholly owned subsidiary in April of
2000 which issues thrift accounts and savings certificates to investors. As
of August 28, 2000, the subsidiary did not have sufficient assets to
liquidate investors' thrift accounts and savings certificates.
PALWEB'S BUSINESS COULD BE AFFECTED BY COMPETITION AND RAPID TECHNOLOGICAL
CHANGE.
PalWeb currently faces competition from many companies that produce
wooden pallets at prices that are substantially lower than the prices PalWeb
charges for its plastic pallets. It is anticipated that the plastic pallet
industry will be subject to intense competition and rapid technological
change. PalWeb could potentially face competition from recycling and plastics
companies, many of which have substantially greater financial and other
resources than PalWeb and, therefore, are able to spend more than PalWeb in
areas such as product development, manufacturing and marketing. Although a
company with greater resources will not necessarily be able to bring a new
product to market before its smaller competitors, substantial resources
enable a company to support many new products simultaneously, thereby
improving the likelihood of at least some of its new products being among the
first to make it to market. PalWeb's revenues and profitability could be
adversely affected by technological change. Competitors may develop products
that render PalWeb's products or proposed products uneconomical or result in
products being commercialized that may be superior to PalWeb's products. In
addition, alternatives to plastic pallets could be developed, which would
have a material adverse effect on PalWeb.
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PALWEB MAY NOT BE ABLE TO EFFECTIVELY PROTECT ITS PATENTS AND PROPRIETARY
RIGHTS.
PalWeb relies on a combination of patents and trade secrets to
protect its proprietary technology, rights and know-how. There can be no
assurance that such patent rights will not be infringed upon, that PalWeb's
trade secrets will not otherwise become known to or independently developed
by competitors, that non-disclosure agreements will not be breached, or that
PalWeb would have adequate remedies for any such infringement or breach.
Litigation may be necessary to enforce proprietary rights of PalWeb or to
defend PalWeb against third-party claims of infringement. Such litigation
could result in substantial cost to, and a diversion of effort by, PalWeb and
its management and may have a material adverse effect on PalWeb. PalWeb's
success and potential competitive advantage is dependent upon its ability to
exploit the technology under these patents. There can be no assurance that
PalWeb will be able to exploit the technology covered by these patents or
that it will be able to do so exclusively. PalWeb currently has certain
patent applications pending. There can be no assurance that patent
applications will result in patents being issued, or that, if issued, the
patents will afford protection against competitors with similar technology.
Although PalWeb is not aware of any claim against it for
infringement, there can be no assurances that parties will not bring claims
against PalWeb for infringement in the future. PalWeb's ability to
commercialize its products and proposed products depends, in part, on its
ability to avoid claims for infringement brought by other parties. Laws
regarding the enforceability of intellectual property vary from jurisdiction
to jurisdiction. There can be no assurance that intellectual property issues
will be uniformly resolved, or that local laws will provide PalWeb with
consistent rights and benefits. In addition, there can be no assurance that
competitors will not be issued patents that may prevent the manufacturing or
marketing of PalWeb's products or proposed products.
PALWEB'S BUSINESS COULD BE AFFECTED BY NEW LEGISLATION REGARDING
ENVIRONMENTAL MATTERS.
The business operations of PalWeb and the ownership and operations
of real property by PalWeb are subject to extensive and changing federal,
state and local environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of
wastes (including solid and hazardous wastes) or otherwise relating to the
protection of the environment. As is the case with manufacturers in general,
if a release of hazardous substances occurs on or from PalWeb's properties or
any associated off-site disposal location, or if contamination from prior
activities is discovered at any of PalWeb's properties, PalWeb may be held
liable. No assurances can be given that additional environmental issues will
not require future expenditures.
Both the plastics industry, in general, and PalWeb are subject to
existing and potential federal, state, local and foreign legislation designed
to reduce solid wastes by requiring, among other things, plastics to be
degradable in landfills, minimum levels of recycled content, various
recycling requirements, disposal fees and limits on the use of plastic
products. In addition,
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various consumer and special interest groups have lobbied from time to time
for the implementation of these and other such similar measures. Although
PalWeb believes that the legislation promulgated to date and such initiatives
to date have not had a material adverse effect on PalWeb, there can be no
assurance that any such future legislative or regulatory efforts or future
initiatives would not have a material adverse effect on PalWeb.
PALWEB'S BUSINESS WILL BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS.
The testing, manufacturing and marketing of PalWeb's products and
proposed products involve the inherent risks of product liability claims or
similar legal theories against PalWeb, some of which may cause PalWeb to
incur significant defense costs. Although PalWeb currently maintains product
liability insurance coverage that it believes is adequate, there can be no
assurance that the coverage limits of its insurance are adequate or that all
such claims will be covered by insurance. In addition, these policies
generally must be renewed every year. While PalWeb has been able to obtain
product liability insurance in the past, there can be no assurance it will be
able to obtain insurance in the future on its products or proposed products.
Product liability insurance varies in cost, is difficult to obtain and may
not be available in the future on terms acceptable to PalWeb, if at all. A
successful product liability claim or other judgment against PalWeb in excess
of its insurance coverage could have a material adverse effect upon PalWeb.
PALWEB CURRENTLY DEPENDS ON CERTAIN KEY PERSONNEL.
PalWeb is dependent on the experience, abilities and continued
services of its current management personnel. In particular, Mr. Kruger, its
Chairman of the Board and President, has played a significant role in the
development and management of PalWeb. The loss or reduction of services of
Mr. Kruger or any other key employee could have a material adverse effect on
PalWeb. There is no assurance that additional managerial assistance will not
be required.
PalWeb's future success depends in part upon its ability to attract
and retain highly qualified personnel. On July 13, 2000, Ron Hale, the former
Vice President (Engineering), Secretary and Treasurer of PalWeb and the
former President of PalWeb's wholly owned subsidiary, Plastic Pallet
Production, Inc., resigned from all of his positions within PalWeb and
Plastic Pallet Production, Inc. PalWeb's future success depends in part on
its ability to attract and retain an individual with engineering and
managerial expertise similar to Mr. Hale's expertise. PalWeb faces
competition for such personnel from other companies and organizations, many
of which have significantly greater resources than PalWeb. There can be no
assurance that PalWeb will be able to attract and retain the necessary
personnel on acceptable terms or at all.
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PALWEB'S STOCK TRADES IN A LIMITED PUBLIC MARKET, IS SUBJECT TO PRICE
VOLATILITY AND THERE CAN BE NO ASSURANCE THAT AN ACTIVE TRADING MARKET WILL BE
SUSTAINED.
There has been a limited public trading market for PalWeb's Common
Stock and there can be no assurance that an active trading market will be
sustained. There can be no assurance that the Common Stock will trade at or
above any particular price in the public market, if at all. The trading price
of the Common Stock could be subject to significant fluctuations in response
to variations in quarterly operating results or even mild expressions of
interest on a given day. Accordingly, the Common Stock should be expected to
experience substantial price changes in short periods of time. Even if PalWeb
is performing according to its plan and there is no legitimate
company-specific financial basis for this volatility, it must still be
expected that substantial percentage price swings will occur in PalWeb's
securities for the foreseeable future.
CERTAIN RESTRICTED SHARES OF PALWEB WILL BE ELIGIBLE FOR SALE IN THE FUTURE
AND COULD AFFECT THE PREVAILING MARKET PRICE OF PALWEB'S COMMON STOCK.
Certain of the outstanding shares of Common Stock are "restricted
securities" under Rule 144 of the Securities Act, and (except for shares
purchased by "affiliates" of PalWeb as such term is defined in Rule 144) would
be eligible for sale as the applicable holding periods expire. In the future,
these shares may be sold only pursuant to a registration statement under the
Securities Act or an applicable exemption, including pursuant to Rule 144.
Under Rule 144, a person who has owned Common Stock for at least one year may,
under certain circumstances, sell within any three-month period a number of
shares of Common Stock that does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume during
the four calendar weeks prior to such sale. In addition, a person who is not
deemed to have been an affiliate of PalWeb at any time during the three months
preceding a sale, and who has beneficially owned the restricted securities for
the last two years is entitled to sell all such shares without regard to the
volume limitations, current public information requirements, manner of sale
provisions and notice requirements. Sales or the expectation of sales of a
substantial number of shares of Common Stock in the public market by selling
stockholders could adversely affect the prevailing market price of the Common
Stock, possibly having a depressive effect on any trading market for the
Common Stock, and may impair PalWeb's ability to raise capital at that time
through additional sale of its equity securities.
PALWEB DOES NOT EXPECT TO DECLARE OR PAY ANY DIVIDENDS IN THE FORESEEABLE
FUTURE.
PalWeb has not declared or paid any dividends on its Common Stock.
PalWeb currently intends to retain future earnings to fund the development and
growth of its businesses, to repay indebtedness and for general corporate
purposes, and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
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PALWEB'S COMMON STOCK MAY BE SUBJECT TO SECONDARY TRADING RESTRICTIONS RELATED
TO PENNY STOCKS.
Certain transactions involving the purchase or sale of Common Stock
of PalWeb may be affected by a Securities and Exchange Commission rule for
"penny stocks" that imposes additional sales practice burdens and requirements
upon broker-dealers that purchase or sell such securities. For transactions
covered by this penny stock rule, broker-dealers must make certain disclosures
to purchasers prior to the purchase or sale. Consequently, the penny stock
rule may impede the ability of broker-dealers to purchase or sell PalWeb's
securities for their customers and the ability of persons now owning or
subsequently acquiring PalWeb's securities to resell such securities.
THE RESULTS OF PENDING LITIGATION AGAINST PALWEB MAY HAVE AN ADVERSE AFFECT ON
ITS FINANCIAL CONDITION OR BUSINESS PROSPECTS.
PalWeb is a party to various pending legal proceedings that involve
claims or potential claims against PalWeb and if resolved unfavorably to
PalWeb could have an adverse affect on PalWeb's financial condition or other
effects on PalWeb. There is no assurance these proceedings will be resolved
favorably.
HISTORY
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PalWeb Corporation is a Delaware corporation that was incorporated on
February 24, 1969 under the name Permaspray Manufacturing Corporation. It
changed its name to Browning Enterprises Inc. in April of 1982, to Cabec
Energy Corp. in June of 1993 and became PalWeb Corporation in April of 1999.
From April 1993 to December 1997 PalWeb was engaged in various
businesses, including the business of exploration, production and development
of oil and gas properties in the continental United States and the operation
of related service businesses. In December 1997, PalWeb acquired all of the
issued and outstanding stock of Plastic Pallet Production, Inc. or "PPP," a
Texas corporation, in exchange for a majority of the issued and outstanding
stock of PalWeb. Pursuant to the terms of the reverse acquisition contract,
all of the assets, contract rights and liabilities of PalWeb that related in
any way to the oil and gas business were transferred to The Union Group, Inc.,
a Nevada corporation (the "Union Group"). In November 1998, PalWeb distributed
all of the issued and outstanding stock of the Union Group to its stockholders
(other than the former shareholders of Plastic Pallet Production, Inc.).
Since the acquisition of all of the issued and outstanding stock of
Plastic Pallet Production, Inc., PalWeb's primary business is (i)
manufacturing and selling plastic pallets, and (ii) the custom design,
manufacture and sale of large plastic injection molding machines and systems.
PalWeb is currently a development stage company. As of June 30, 2000, PalWeb
has not sold any plastic injection molding machines and sales of plastic
pallets have been limited.
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Michael John served as Chairman of the Board and President of PPP
prior to its acquisition by PalWeb in December 1997 and continued to serve as
Chairman and President of PalWeb thereafter. In October 1998, PPP entered into
an agreement for sale of a plastic injection molding machine with Pace Plastic
Pallets, Inc. ("Pace") that was intended to provide for the sale of specified
machinery to Pace to permit Pace to manufacture pallets for sale to PPP for
further distribution by PPP under patent licenses granted by PPP to Pace. In
exchange for Pace's agreement to purchase the machinery and make an earnest
money deposit of $300,000, 10 million shares of PalWeb were transferred by
Michael John to Pace. At the time of this transaction, Pace was principally
owned by Paul Kruger; however, neither Paul Kruger nor any of his related
entities, including Pace, were affiliated with or related to PalWeb or any of
its subsidiaries. The terms of this transaction were entered into on an arm's
length negotiated basis.
PPP encountered difficulties in connection with the manufacturing of
the machinery required by this agreement due to the absence of available
funding and other reasons. As a result, in January 1999, PalWeb and PPP
entered into a consulting agreement with Paceco Financial Services, Inc.
("PFS"), an entity owned by Mr. Kruger, in which PFS provided $189,000 in cash
to PalWeb and agreed to provide comprehensive management assistance to PPP in
exchange for the issuance of 41 million shares of PalWeb Common Stock. PalWeb
recorded an expense of $4.1 million in connection with this transaction, which
was equal to the estimated fair value of the shares issued at that time. At
the time of this transaction, Mr. Kruger was not affiliated with PalWeb. This
was an arm's length negotiated transaction entered into between PFS and the
former management of PalWeb and PPP. This transaction was negotiated at a time
when PalWeb was in serious financial difficulty. The services performed
included strategic planning, marketing, general consulting and management
services, including recovery of shares issued to other parties in transactions
potentially detrimental to PalWeb. The number of shares issued in this
transaction is roughly equal to the number of shares owned by Wolfgang Ullrich
and Rosarin Chaisayan, which were recovered by PalWeb under Mr. Kruger's
supervision as described below.
On July 9, 1999, Paul Kruger became Chairman of PalWeb and Michael
John resigned as Chairman and as an executive officer. Subsequent to that
date, Mr. Kruger has been actively involved in the day to day management of
PalWeb and PPP in order to further its business plan. Also subsequent to that
date through August 28, 2000, Mr. Kruger or his affiliated entities have
provided in excess of $1,500,000 in funding for the operation of PalWeb in the
form of $1,187,479 in cash advances and $350,021 in consulting services and
have been issued an additional 15,375,000 shares of Common Stock.
On June 1, 2000, an affiliate of Paul Kruger provided PalWeb a
$400,000 line of credit payable on December 1, 2000 with interest at 18%. The
loan is secured by assets of PPP with a net book value of $727,288 as of May
31, 2000, including all items of inventory, equipment, patents and the Vimonta
stock. The funds were used to satisfy existing obligations and to provide
short term operating capital until such time as PalWeb could refinance. Due to
its development stage status, PalWeb's attemps for bank financing have all
been contingent on
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personal guarantees from its president, Mr. Kruger. Accordingly, Mr. Kruger
has elected to provide financing direct from his affiliated entities and has
requested and received security equivalent to that which a bank would require.
It is Mr. Kruger's intention to eventually retire any loans from his
affiliates with the proceeds from future bank financing once PalWeb can
qualify on its own merit. As of June 29, 2000, PalWeb had $65,000 of the
proceeds from the loan remaining.
Subsequent to becoming more active in management, Mr. Kruger
discovered various transactions and agreements that had been entered into by
prior management that were detrimental to PalWeb. One of these involved the
issuance of 41,443,308 shares of PalWeb Common Stock to Wolfgang Ullrich and
Rosarin Chaisayan in January 1998 for consideration that was never received.
In January 1999, PalWeb initiated an action against these parties in the
District Court of Dallas County, Texas, seeking a judgment for monetary
damages and cancellation of the shares issued to them. On September 16, 1999,
PalWeb was granted a default judgment awarding damages in the amount of $20
million and ordering the return and cancellation of the stock certificates for
the 41,443,308 shares issued as well as awarding attorney's fees. Such shares
have been canceled on PalWeb's books.
In another action in the District Court of Dallas County, Texas,
PalWeb and PPP obtained a default judgment against affiliated entities of
Wolfgang Ullrich named Chartex AG and New Inter HKB, AG ("NIH") on March 17,
2000. Chartex AG was issued 6 million shares of Common Stock in PalWeb as
additional consideration for an alleged $1.35 million loan made to PPP by
Chartex. In addition, PPP had an obligation of $1.6 million to NIH and had
issued 7,413,384 shares to NIH in PalWeb. As a result of the relationship
between Ullrich and Chartex AG and NIH, the Court ordered that PPP could
offset $1.6 million owed to NIH against the $20 million judgment against
Ullrich and also ordered that defendants Chartex AG and NIH return to PalWeb a
total of 13,413,384 shares of PalWeb Common Stock and ordered that PPP's
liability to Chartex in the amount of $1.35 million secured by a mortgage be
canceled. These shares have been reflected as canceled on the Company's
records as of March 31, 2000. PalWeb does not expect that any of the money
damages will be recovered.
Another transaction that prior management entered into that could be
detrimental to PalWeb involves Vimonta AG, a Swiss based company ("Vimonta").
PalWeb and PPP have commenced litigation against Vimonta to determine the
rights of the parties. For information regarding Vimonta, please Part II, Item
2, Legal Proceedings of PalWeb's Form 10-SB/A, Amendment No. 6, filed on
September 7, 2000. The current management of PalWeb is reviewing and will
continue to review other past transactions involving PalWeb to determine if
any corrective actions need to be taken for the benefit of PalWeb's
shareholders. Michael John, the former President of PalWeb, has instituted two
lawsuits against PalWeb making claims for damages. PalWeb has asserted
counterclaims for breach of fiduciary duty and mismanagement. See Part II,
Item 2, Legal Proceedings of PalWeb's Form 10-SB/A, Amendment No. 6, filed on
September 7, 2000.
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ACQUISITION OF PACECO FINANCIAL
On April 3, 2000, PalWeb acquired Paceco Financial Services, Inc.
("PFS") by means of a merger of PFS's parent company, Pace Holding, Inc., into
a wholly owned subsidiary of PalWeb, PP Financial, Inc. In the acquisition,
PalWeb issued 50 million shares of its Common Stock in exchange for all the
outstanding stock of Pace Holding, Inc. and PFS became an indirect wholly
owned subsidiary of PalWeb. All of the outstanding stock of Pace Holding, Inc.
was owned by Paul Kruger, the Chairman and Chief Executive Officer of PalWeb.
Mr. Kruger acquired Pace Holding, Inc. for $81,250 in cash. Mr. Kruger
subsequently contributed approximately $150,000 in cash and $150,000 in
preferred stock of PFS to Pace Holding, Inc. PFS, in addition to its other
assets, owned 43.5 million shares of PalWeb Common Stock, which by virtue of
the acquisition, are treated as treasury stock on PalWeb's records and,
accordingly, the acquisition resulted in the issuance of an additional 6.5
million shares of PalWeb Common Stock.
The 50 million shares of PalWeb's Common Stock that PalWeb exchanged
for all of the outstanding stock of Pace Holding, Inc. was authorized and
approved by the members of the board of directors of PalWeb other than Mr.
Kruger, Mark Kidd and Lyle Miller. At the time of the acquisition of Pace
Holding, Inc., Mr. Kidd was the President of PFS and an officer, director and
minority owner of Foresight, Inc., an entity controlled by Mr. Kruger; and
Messrs. Kidd and Miller were an officer and director, respectively, of Precis
Smart Card Systems, Inc., an entity that was in the process acquiring
Foresight, Inc. from Messrs. Kidd and Kruger. The 6.5 million incremental
shares of PalWeb's Common Stock that were issued in the acquisition of Pace
Holding, Inc. represented the value attributable to PFS's business, other than
the ownership of PalWeb Common Stock. The 6.5 million incremental shares
reflected the subjective business judgement of the parties relating to the
value of PFS in excess of the 43.5 million shares of PalWeb acquired in the
transaction. There was no fairness opinion obtained and the number of
incremental shares issued was not based on any objective or precise valuation
criteria.
PFS has been in business since 1952 and is engaged in the business of
making consumer and small business loans primarily in Oklahoma and is
regulated as an "investment certificate issuer" by the Oklahoma Securities
Department. For its last fiscal year ended September 30, 1999, Pace Holding,
Inc. had revenues of $790,000, net loss of $2,300,000 and total assets and
stockholder's deficiency of $7,000,000 and $1,700,000, respectively. For the
six months ended March 31, 2000, Pace Holding, Inc. had revenues of $370,000,
net loss of $800,000 and at such date had total assets of $5,500,000 and
stockholder's deficiency of $2,400,000.
In connection with an examination of Paceco Financial Services in
March 1999, the Oklahoma Department of Securities determined that certain of
PFS's activities, including the ownership of real estate and the ownership of
equity securities, did not comply with the provisions of the Oklahoma
Securities Act relating to the permissible activities of investment
certificate issuers. As a result of such determination, PFS ceased making any
new investments
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not permissible to investment certificate issuers. Since that time PFS and the
Oklahoma Securities Department have been negotiating an agreed order for the
ultimate liquidation of the impermissible assets and repayment of the
investment certificates. PFS's ability to fund repayment of investment
certificates is substantially dependent on PFS's ability to sell or otherwise
receive funding related to its PalWeb stock. If this cannot be achieved, PFS
would likely not have sufficient assets to pay the holders of the investment
certificates. At March 31, 2000, PFS had $6,700,000 in investment certificates
outstanding.
If PFS and PalWeb are unsuccessful in negotiating an agreement with
the Oklahoma Securities Department, the Department may take enforcement
actions against PFS that could have a material adverse effect on PFS and
PalWeb.
In addition to the general authority available to the Administrator
of the Oklahoma Securities Department to issue cease and desist orders, place
limitations on activities or functions and seek civil monetary remedies, both
in an administrative forum or in Oklahoma District Court, the Oklahoma
Securities Administrator has the additional authority with respect to
investment certificate issuers to (i) remove officers, directors or employees
found to be dishonest, reckless, unfit to participate in the conduct of the
affairs of the institution or practicing continuing disregard or violation of
laws, rules, regulations or orders which are likely to cause substantial loss
to the company or likely to seriously weaken the condition of the company;
(ii) assess the shareholders of an investment certificate issuer for cash to
remedy an impairment of capital and if such assessment is not paid within
ninety (90) days, cause the shares of the defaulting stockholders to be sold
at public auction for a price not less than the amount of the assessment; or
(iii) apply for the appointment of a conservator or liquidator. As of August
25, 2000, the Oklahoma Securities Department had not indicated to PFS an
intention to pursue enforcement remedies, but such enforcement actions could
occur in the future.
CURRENT BUSINESS
PalWeb's principal subsidiary, Plastic Pallet Production, Inc. or
"PPP", is the entity through which PalWeb conducts its business of selling
plastic pallets and plastic injection molding machines. PPP holds several
patents for the original design of various types of plastic pallets, and has
received notice that a patent relating to the original design of a materials
handling plastic pallet will be granted on August 29, 2000 under U.S. Patent
No. 6,109,190.
PalWeb's plastic pallets are much more durable and sanitary than
traditional wood pallets. At PalWeb's request, its new plastic pallet design
has been subjected to standard industry tests known as ASTM (American Society
for Testing and Materials) Standard D 1185-98a (a strength test) and D 4728-91
(a vibration test), which were conducted by Container Technologies Laboratory,
Inc. ("Container Technologies"), Lenexa, Kansas, a nationally recognized
independent testing facility. Container Technologies is certified as a
Performance Oriented Packaging (POP) Laboratory by the U.S. Department of
Transportation. Container Technologies is also an International Safe Transit
Association (ISTA) Qualified Test Laboratory and a
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National Motor Freight Classification (NMFC) Association Certified Laboratory.
Container Technologies certified PalWeb's plastic pallet as having passed the
above referenced tests. The testing procedures found the pallet to be stronger
and more versatile than the typical hardwood pallet.
PPP has fabricated an operational prototype plastic injection molding
system. PPP is continually modifying and improving its equipment. PPP began
utilizing the prototype equipment by running a 10 hour shift 4 days per week.
As of June 1, 2000, PPP has sold 440 pallets and has 278 rackable and 329
floor (non-rackable) pallets in inventory. As of August 24, 2000, PPP is in
the process of increasing production by adding a second shift. Two shifts
utilizing the current equipment 5 days per week can produce approximately 1232
rackable and 196 floor pallets per month. With the addition of the third shift
and the planned modifications to its machinery, as described in Part I, Item
2, Management's Discussion and Analysis or Plan of Operation, PPP anticipates
that production will increase to approximately 4,000 pallets per month. PPP
expects to reach this production level if and when PalWeb secures the funds
that are necessary to make the adjustments to the machinery. 4,000 pallets per
month is the maximum capacity of PPP's research/prototype plastic injection
molding system.
PalWeb is currently exploring methods to raise funds through various
means including, but not limited to, the private placement of equity
securities, private loans, commercial loans or technology licensing
arrangements. Any loans to PalWeb will likely be required to be secured and
guaranteed by Paul Kruger. PalWeb is dependent upon Mr. Kruger to provide
and/or secure additional debt financing. Mr Kruger has no obligation to
provide additional debt financing to PalWeb or secure such financing on
PalWeb's behalf and there is no assurance that Mr. Kruger will do so. PalWeb
plans to use future funding to fabricate a plastic injection molding system
comprised of multiple plastic injection molding machines with integrated
material feed lines. If successful, the addition of these machines will permit
PalWeb to expand its production of pallets. Should PalWeb successfully
increase its production levels, it will need to employ additional production
and supervisory employees, as described in this section. See Part I, Item 2,
Plan of Operations and Liquidity for additional information.
In the past two years, approximately $2 million has been spent on the
development of PalWeb's business by designing plastic pallets and building
prototypes of the plastic injection molding machines that will be manufactured
by PalWeb for its own use in manufacturing plastic pallets and for resale to
industrial users of plastic injection molding systems.
Carving a niche in an industry as competitive as the pallet business
will require more than just capital and equipment. PalWeb's future success
will depend in large part on the strategic planning of its management. PalWeb
has received very strong indications of interest from a number of extremely
large users of pallets now that the material handling pallet has been
successfully tested under applicable industry standards. This has
substantially increased the level of interest and has greatly increased the
viability of PalWeb's pallet being a large volume seller.
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However, there is no assurance that PalWeb or PPP will be successful in
marketing the pallets commercially.
The principal raw materials used in manufacturing PalWeb's plastic
pallets are in abundant supply, and some of these materials may be obtained
from recycled plastic containers. At the present time, these materials are
being purchased from local suppliers and the supply is readily available.
PALLET INDUSTRY
According to the U.S. Forest Service, as printed in the National
Wooden Pallet and Container Association publication, approximately 400 million
new wood pallets are purchased in the United States each year, and some
research sources estimate that even more than 400 million new pallets are
purchased each year. At an overall average selling price of $9/pallet, the
pallet manufacturing and sales business is approximately a $4 billion
industry. It is estimated that the United States wood pallet industry is
served by approximately 3,600 companies, most of which are small, privately
held firms that operate in only one location. The industry is generally
comprised of companies that manufacture new pallets or repair and recycle
pallets. New pallet manufacturing generates about 60%-65% of the industry's
revenues. The U.S. Forest Service estimates that approximately 1.9 billion
wood pallets are in circulation in the United States today and that roughly
400 million of the wood pallets currently in circulation were newly
manufactured. On an annual basis, approximately 175 million wood pallets are
recycled through a process of retrieval, repair, re-manufacturing and
secondary marketing, approximately 225 million are sent to landfills, and
approximately 100 million are burned, lost, abandoned or leave the country.
The pallet industry has experienced significant change and growth
during the past several years. These changes are partly due to the focus of
large and small businesses on improving the logistical efficiency of their
manufacturing and distribution systems, including the use of just-in-time
procurement, manufacturing and distribution systems. With the adoption of
these systems, expedited product movement has become increasingly important
and the demand has increased for a high-quality source of pallets distributed
through an efficient, more sophisticated system. The June 1996 issue of Modern
Material Handling states that product damage resulting from faulty wood
pallets is between $1 - $2 billion annually. This damage is caused by pallets
breaking under load, splinters and nails from the pallets, worker injury and
other causes. In addition, environmental concerns (plastic is recyclable) and
product sanitation concerns (plastic pallets can be sanitized, wood pallets
cannot) have created a strong potential demand for cost-effective plastic
pallets.
Pallets are used in virtually all United States industries in which
products are broadly distributed, including, but not limited to, the
automotive, chemical, consumer products, grocery, produce and food production,
paper and forest products, retailing and steel and metals industries.
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Forklifts, pallet trucks and pallet jacks are used to move loaded pallets,
reducing the need for costly hand loading and unloading at distribution
centers and warehouses.
Pallets come in a wide range of shapes and sizes. However, the
grocery industry, which accounts for about one-third of the demand for new
pallets, uses a standard 40 inch by 48 inch pallet and this has become the
standard pallet size in most industries in the United States. Some industries,
however, have developed specialized pallet sizes. PalWeb's pallet is 40 inches
by 48 inches in size.
Block edge, rackable pallets are heavy duty pallets with 9 blocks
between the pallet decks, to allow true four-way entry by forklifts, pallet
trucks and pallet jacks. Block edge, rackable pallets are often used to
transport goods from manufacturers to distribution centers.
Nestable pallets have "feet" on them so that they can be easily
stacked. Nestable pallets are often used to transport goods between
distribution centers and retail stores.
Until very recently, plastic pallets had not penetrated the market
significantly, due in part to their cost. Heavy duty plastic pallets cost
$46-$100, heavy duty wood pallets typically cost approximately $26, and less
sturdy wood pallets typically cost $8-$11. As stated in an article in the July
1996 issue of Material Handling Engineering, wood pallets have an estimated
useful life of 7-10 trips before repair or recycling is required. A trip, or
cycle, is defined as the movement of a pallet under a load from a manufacturer
to a distributor (or from a distributor to a retailer) and the movement of the
empty pallet back to the manufacturer. Heavy duty plastic pallets, as
currently manufactured, have a useful life of 60 or more trips, on average.
The trend that appears to be emerging is a switch from wood to
plastic, with the only limiting factor being price. Therefore, PalWeb will
target both wood and plastic pallet users during its market introduction phase.
PalWeb intends to stay on the "cutting edge" of the market by
constantly conducting research on pallet design, plastic injection molding
system design and the materials used to make the plastic pallets.
EMPLOYEES
PalWeb through PPP leases six full time employees from Accord Human
Resources, Inc., an independent employee leasing company. PalWeb decided to
lease its employees because, considering the small number of employees
currently required by PalWeb's level of operations, it is more cost effective
than hiring its own employees. PalWeb's management has determined that leasing
the present number of employees saves approximately $1,500 per month. The cost
of leasing the employees from Accord Human Resources, Inc., over and above the
actual cost of payroll, is approximately 2.0% of payroll, which is
approximately $500 per month. If PalWeb decided to hire its own employees, it
would also need to hire a full-time human resource
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employee, which would cost approximately $2,000 per month. After management
made this determination, PalWeb's former President, Michael John, negotiated
the Employee Lease Agreement with Accord Human Resources, Inc. and executed
such agreement on behalf of PPP.
If PalWeb increases production levels to 4,000 pallets per month, it
will need to employ a total of eleven to thirteen production employees and
three to four supervisory/staff employees. Should PalWeb successfully increase
its production levels to 50,000 pallets per month, it will need to employ a
total of twenty to thirty production employees and five to seven
supervisory/staff employees. If PalWeb successfully increases its production
levels to 100,000 pallets per month, it will need to employ a total of
thirty-five to forty production employees and ten to fifteen supervisory/staff
employees.
MARKETING
PPP plans to distribute its pallets and its plastic injection molding
systems through a combination of a network of independent contractor
distributors and sales by PalWeb officers and employees. PalWeb believes that
PPP's patents on its plastic pallet designs and its plastic injection molding
machines, along with appropriate pricing of its products, should give PalWeb a
sales advantage with respect to its competition. PalWeb hopes to gain product
acceptance by marketing the concept that the widespread use of plastic pallets
could greatly reduce the destruction of trees on a worldwide basis.
PATENTS
PPP currently holds the following patents:
<TABLE>
<S> <C>
1. Interlocking Modular Pallet Application and Method of Construction
Application No. 08/779,372
Filing Date: November 26, 1996
U.S. Patent No. 5,860,369 issued on January 19, 1999
Expiration Date: January 18, 2016
2. Modular Pallet with Interlocking Apparatus
Application No. 08/795,856
Filing Date: February 6, 1997
U.S. Patent No. 5,887,529 issued on March 30, 1999
Expiration Date: March 29, 2016
3. Vertical Interlocking Modular Pallet Application and Method of Construction
Application No. 08/796,571
Filing Date: February 6, 1997
U.S. Patent No. 5,809,905 issued on September 22, 1998
Expiration Date: September 21, 2015
</TABLE>
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4. Modular Pallet System
Application No. 08/735,802
Filing Date: September 21, 1996
U.S. Patent No. 5,791,261 issued on August 11, 1998
Expiration Date: August 10, 2015
PPP is in the final stages of securing a patent on its new materials
handling pallet. The application for the patent on this materials handling
pallet was filed on October 19, 1999 under application No. 09/421,766 and was
allowed in April 2000. PPP was notified that the patent granted on August 29,
2000 under U.S. Patent No.
6,109,190.
PPP also has a patent pending on a new concept in the construction of
functional, operational plastic injection molding machines. These machines are
approximately 20% to 30% of the length of a traditional style plastic injection
molding machine, use approximately one-third of the electricity used by a
traditional style machine, use approximately 10% of the oil (circulated) used by
a traditional style machine, and can be profitably sold to the end user at a
cost that is substantially less than the cost of a traditional style machine.
However, it must be noted that there is no assurance that PalWeb will be able to
sell any of the newly designed plastic injection molding machines. Under United
States patent law, patents that are approved are valid for 17 years from the
date of issuance unless they are amended and extended.
PPP's pallets and plastic injection molding machines have a broad
spectrum of possible applications. As a result, it is not foreseen that sales
will be dependent on one or a few major customers.
SUBSIDIARIES
PalWeb has six wholly owned subsidiaries and one indirect wholly owned
subsidiary. All of the subsidiaries, except PPP and PP Financial, Inc.,
currently are inactive and have no employees. The inactive subsidiaries were
formed as part of the business planning process so they would be in existence at
the time that they become needed. A list of PalWeb's subsidiaries is set forth
below:
Plastic Pallet Production, Inc., a Texas corporation;
Plastic Pallet Support Equipment, Inc., a Texas
corporation;
Modular Plastic Pallets, Inc., a Texas corporation;
PP Financial, Inc., a Texas corporation;
Paceco Financial Services, Inc., a wholly owned
subsidiary of PP Financial, Inc.;
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PP Transport, Inc., a Texas corporation; and
PP Systrans, Inc., a Texas corporation.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following lists the directors and executive officers of PalWeb.
Directors of PalWeb are elected annually at each annual meeting of shareholders.
Executive officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
TERM AS
NAME POSITION DIRECTOR EXPIRES
---- -------- ----------------
<S> <C> <C>
Paul A. Kruger Director, President and Chairman of the Board 2001
Lyle W. Miller Director and Executive Vice President (Marketing) 2001
Mark R. Kidd Director 2001
</TABLE>
PAUL A. KRUGER
CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT
Mr. Kruger, age 46, earned a Bachelor of Business Administration degree
in accounting from Cameron University, Lawton, Oklahoma, and earned a Juris
Doctor degree from the University of Oklahoma City Law School. He has 25 years
of experience in the financial services industry. Mr. Kruger co-founded United
Bank Club Association, Inc. ("UBCA"), Norman, Oklahoma, in 1980, and served as
its President and CEO until February 1996, when UBCA was sold. Mr. Kruger
supervised and participated in every facet of UBCA's business, including
strategic planning, sales, marketing, operations and service quality. Under Mr.
Kruger's leadership, UBCA grew to more than 350 employees, and had operational
and sales branches in Michigan, Florida, Arizona, Texas and Mexico. At the time
UBCA was sold, it provided financial enhancement services to more than 2,000
client institutions serving more than 6,000,000 individual customers throughout
the United States, Puerto Rico, the U.S.
Virgin Islands and Mexico.
In 1997, Mr. Kruger became the Chairman of the Board of Directors of
Paceco Financial Services, Inc. ("Paceco"). Mr. Kruger also serves as the
Chairman of the Board of Directors of Foresight, Inc. His responsibilities and
contributions to these companies include assisting in the development,
implementation and execution of strategic planning.
Mr. Kruger also currently holds managing officer positions in both
Hildalgo Trading Company, L.C. and Onward, L.L.C.
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Mr. Kruger became a director of PalWeb by and through a written consent
of the stockholders of PalWeb dated July 8, 1999 and became President on January
22, 2000.
LYLE W. MILLER
DIRECTOR AND EXECUTIVE VICE PRESIDENT (MARKETING)
Mr. Miller, age 56, earned a Bachelor of Business Administration degree
from Michigan State University and attended Michigan State University's Master's
program in Finance. For the past six years, Mr. Miller has been the President
and a Director of McMiller Holding Company, Northern Leasing & Sales, Inc. and
Northern Connections, Inc., which are based in Lansing, Michigan. Each of these
companies are privately held and are engaged in the real estate business.
Additionally, Mr. Miller is a partner in MahMill Acres, a closely held real
estate development partnership, and serves as the President and a Director of
Servco Incorporated, Lansing, Michigan, and Lansing Ice & Gymnastic Center,
Inc., a privately held corporation that operates the Lansing Ice & Gymnastic
Center and Landings Restaurant in Lansing, Michigan. Mr. Miller has also served
on the boards of directors of two reporting companies, Precis Smart Card
Systems, Inc. and Capitol Bancorp Limited
On January 22, 2000, Mr. Miller was elected to the board of directors
of PalWeb by the shareholders of PalWeb and was appointed Vice President of
Marketing by the board of directors of PalWeb.
MARK R. KIDD
DIRECTOR
Mr. Kidd, age 33, earned a Bachelor of Business Administration in
Accounting from Southern Methodist University, Dallas, Texas, in 1988 . Mr. Kidd
began his career at the accounting firm of Arthur Andersen, L.L.P. where he
earned the designation of Certified Public Accountant. He worked at Arthur
Andersen for eight years where he served financing services clients ranging in
size from less than $10,000,000 to greater than $2,000,000,000. Mr. Kidd served
as the Chief Financial Officer for Republic Bank of Norman, Oklahoma, a
financial institution with over $100,000,000 in assets. Mr. Kidd has served as
the Executive Vice President and Chief Financial Officer of Foresight, Inc. in
Norman, Oklahoma since 1997. Foresight, Inc. is a marketing company that
develops membership and loyalty programs for companies that are designed to
solidify and enhance customer relationships. Foresight, Inc. services over
250,000 customers nationwide through relationships with companies in numerous
industries including rent-to-own, banking, and financial services. In addition,
Mr. Kidd serves as Chief Financial Officer, Controller and Secretary of Precis
Smart Card Systems, Inc.
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On January 22, 2000, Mr. Kidd was elected to the board of directors of PalWeb by
the shareholders of PalWeb.
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PALWEB CORPORATION
By: /s/ Paul A. Kruger
-------------------------------------
Paul A. Kruger
Chairman of the Board and President
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